Lewis Schiff: How you define failure predicts success in building wealth

How people interpret failure greatly determines their success in building wealth, a business author told technology entrepreneurs Wednesday night in Hoboken.

Lewis Schiff, in conducting research for his book, "Business Brilliant," said surveys revealed middle-class citizens are more likely to be discouraged by significant career setbacks or failures, and more likely to quit or change career paths as a result.

Self-made wealthier participants, by contrast, were far more likely to regard failure as a clarifying moment, and were more likely to continue their chosen pursuits applying lessons from past experience, Schiff said.

"The issue seems to be a misunderstanding of the role of failure in the middle class," Schiff said in keynote speech to about 130 entrepreneurs and interested parties at the Babbio Center at Stevens Institute of Technology, part of the monthly meeting of New Jersey Tech Meetup. "Failure is a learning tool, not a source of shame. This is what the middle class, heartbreakingly, doesn't understand about wealth creation."

In a national survey that provided the basis for his book, Schiff said 17.5 percent of middle-class participants, defined as annual household income between $50,000 and $80,000, agreed with the statement: "Failure has taught me what I'm good at."

But 78.1 percent of individuals described as high-net worth — between $10 million and $30 million — and 94.9 percent of individuals of ultra-high-net worth — defined as $30 million or more — agreed with that statement.

Schiff's research was based on a 2009 survey of 800 households.

Speaking to an audience of many startup businesses, Schiff said 53.8 percent of middle-class participants said they gave up when asked their response to a "significant failure or career setback." That compares with 0 percent of individuals worth $10 million or more.

Citing his book's survey data about attitudes toward wealth creation, Schiff described what he says is another misconception: success requires constantly improving on one's weaknesses. In reality, Schiff said developing one's core, natural strengths and learning how to profit from them is the proven method of building wealth.

Asked "Do you wish to get better at tasks that you are not exceptionally good at?," 58.1 percent of middle-class participants said "yes," while 7 percent of high net worth individuals agreed with that statement. Zero percent of ultra-high net worth individuals did.

"Spend as little time as you can putting out fires, and spend as much time as you can at what you're exceptionally good at," Schiff said. "That's what builds wealth."

To be counted as self-made, Schiff said survey participants could not have received $50,000 or more from their parents for any purpose, including education. "That probably disqualifies a lot of people in this room."

Schiff addressed other topics including the importance of networking and, not surprisingly, concluded that building one's own business is a surer path to wealth than income from wages.

Schiff is also executive director for Inc. Business Owners Council, a membership organization for Inc. Magazine's entrepreneurs and owners of closely held family businesses, and an author of previous books.